NEWS / Trade Policy

Rupee weakens as oil firms buy dollars

MUMBAI - The rupee hovered near the psychologically important level of 46.50 a dollar on Wednesday as oil companies bought the U.S. currency.

A stronger dollar in the offshore non-deliverable forwards market also provided investors an opportunity to buy dollars onshore and sell them overseas.

At 9:30 a.m., the partially convertible rupee was at 46.425/434 a dollar, down 0.16 percent from Tuesday's close of 46.3475/3575.

Dealers said the market is also awaiting cues from the stock market and signals from the U.S. Federal Reserve.

"The market will now look at the stock market to see whether any recovery takes place. I think it may test 46.50 today," a dealer with a private sector bank said.

The Fed is widely expected to raise its benchmark rate for the 17th straight time on Thursday to 5.25 percent from 5 percent but the markets will focus more on clues to a possible further rate increase at its next meeting in August.

A rise in U.S. rates will narrow the differential with India and trigger concerns about outflows of rate-sensitive foreign capital. India's key short-term rate is at 5.75 percent.

India's main BSE index rose more than 1 percent on Tuesday, but is down nearly 20 percent from a May 11 peak of 12,671.11 points.

The rupee's fortunes have swayed with stock market-linked flows this year. It hit a three-year low of 46.57 on May 31 on equity outflows. Investments made by foreign funds this year have halved since May as they cut exposure to emerging markets.